My personal blog about international trade, public policy & politics, pop culture, and stuff that probably interests only me

Tuesday, June 26, 2012

More Depressing News re Global Protectionism and US Trade Leadership

A few days ago, I reported on a distressing new report from the WTO on the recent increase in global trade protectionism. Unfortunately, it appears that the WTO's report has plenty of company, as a relatively new article from the New York Times makes clear:

Argentina tweaked import regulations on bottle caps and water balloons. India banned exports of cotton. South Africa instituted a tariff on artificial turf. Those recent policy changes sound minute. But they, and scores more like them, have stoked fears about trade protectionism rising as the global economy cools.

The World Trade Organization and other independent analysts are sounding the alarm. In a report released at the end of April, the W.T.O. said that since mid-October the Group of 20 economies — the world’s biggest, which account for a vast majority of the world’s economic output and trade — had added 124 new restrictive measures affecting about 1 percent of world imports.

Global Trade Alert, a respected independent survey, titled a June update on trade protections “Debacle.” It bumped up its estimate of the number of protectionist measures enacted in 2010 and 2011, by 36 percent, and warned that countries had many more coming.

The European Union also issued a report finding a “staggering increase in protectionism” in recent months. Group of 20 members “need to seriously step up their efforts to fight protectionism,” Karel De Gucht, the European Union trade commissioner, said in a statement. “It sends the wrong signal to global trading partners, it sends the wrong signal to investors and it sends the wrong signal to the business community.”

The wave of protectionism comes as growth has slowed or stalled in nearly every region of the world. Trade experts say that governments — particularly in developing and emerging economies that rely heavily on exports to fuel their growth — have felt pressure to protect their domestic industries and started inhibiting foreign competition to compensate....

The Group of 20 countries upheld their promise not to protect their own businesses by restricting trade — the so-called standstill clause. But talks over how long to extend the pledge were tense. Some countries wanted the pledge to expire at the end of 2013. The negotiators representing the Group of 20 countries failed to work out a deal, and the presidents and prime ministers had to step in to reach an agreement to extend the pledge through 2014.

Analysts argue that the countries in the Group of 20 are already breaking their pledge by enacting new measures....

According to the Global Trade Alert, the share of protectionist measures put in place by Group of 20 economies has climbed to 79 percent today from 60 percent in 2009.

The NYT's mention of Argentina is appropriate: under the leadership of Cristina Fernandez de Kirchner, that country has really taken an anti-market turn over the last couple years, and news today that it will suspend an auto trade agreement with Mexico adds to that troubling trend, as well as to the broader global trend toward protectionism.

As I mentioned previously, there are a lot of governments to blame for this mess, but particular consternation should be directed towards the Obama administration and its extremely absent leadership on global international trade issues. A scathing new oped from Canadians Derek Burney and Fen Hampson provides another laundry list of the administration's failings on this front, and explains the immense toll that they've taken on one of the United States' most important bilateral relationships:

Permitting the construction of the Keystone XL pipeline should have been an easy diplomatic and economic decision for U.S. President Barack Obama. The completed project would have shipped more than 700,000 barrels a day of Albertan oil to refineries in the Gulf Coast, generated tens of thousands of jobs for U.S. workers, and met the needs of refineries in Texas that are desperately seeking oil from Canada, a more reliable supplier than Venezuela or countries in the Middle East. The project posed little risk to the landscape it traversed. But instead of acting on economic logic, the Obama administration caved to environmental activists in November 2011, postponing until 2013 the decision on whether to allow the pipeline.

Obama’s choice marked a triumph of campaign posturing over pragmatism and diplomacy, and it brought U.S.-Canadian relations to their lowest point in decades. It was hardly the first time that the administration has fumbled issues with Ottawa. Although relations have been civil, they have rarely been productive. Whether on trade, the environment, or Canada’s shared contribution in places such as Afghanistan, time and again the United States has jilted its northern neighbor. If the pattern of neglect continues, Ottawa will get less interested in cooperating with Washington. Already, Canada has reacted by turning elsewhere -- namely, toward Asia -- for more reliable economic partners.

Economically, Canada and the United States are joined at the hip. Each country is the other’s number-one trading partner -- in 2011, the two-way trade in goods and services totaled $681 billion, more than U.S. trade with Mexico or China -- and trade with Canada supports more than eight million U.S. jobs. Yet the Obama administration has recently jeopardized this important relationship. It failed to combat the Buy American provision in Congress’ stimulus bill, which inefficiently excluded Canadian participation in infrastructure spending.

What’s more, by engaging in protectionism, Washington has violated the substance and spirit of the North American Free Trade Agreement, the trade bloc formed in 1994 among Canada, the United States, and Mexico. As a result, NAFTA, which was initially intended as a template for broader trade expansion by all three partners, has languished while each country has negotiated a spaghetti bowl of bilateral trade agreements with other countries. Trilateral economic summits among the NAFTA partners have become little more than photo-ops accompanied by bland communiqués. Bilateral meetings between U.S. and Canadian leaders, which were a regular feature of the Bill Clinton and George W. Bush eras, have also mostly fallen by the wayside. Meanwhile, the United States demanded upfront concessions from Canada as the price of entry to negotiations over the Trans-Pacific Partnership, a regional free-trade group, while preserving massive agriculture subsidies of its own. The protracted wrangling over a seat at the table does not augur well for meaningful progress.

After years of procrastination, Canada finally secured an agreement for a new Detroit-Windsor bridge -- over which 25 percent of trade between Canada and the United States crosses -- but only after it offered to cover all of the initial costs. The U.S. share is to be repaid over time by the tolls collected, but any shortfalls will rest with Canadian taxpayers. Canada was essentially forced to hold negotiations with Michigan; the U.S. federal government observed quietly from the sidelines....

The only good news in U.S.-Canadian relations to come out of this White House has been the Beyond the Border declaration, a joint statement that Obama and Canadian Prime Minister Stephen Harper issued in February 2011. The initiative was supposed to remove much of the bureaucratic sludge that has thickened the U.S.-Canadian border since 9/11, including costly inspection and reporting requirements on virtually all cross-border shipments. Despite the initial fanfare, however, the border initiative has yet to deliver much of substance, and there has been little evidence to suggest that Obama remains engaged.

Of course, the U.S.-Canadian relationship has had its rocky moments before. In the 1970s and 1980s, in response to public concern over the United States’ economic domination of Canada, Ottawa enacted a wide variety of protectionist measures that irritated Washington. Eventually, the two countries recognized their mutual interests and resolved what differences they had, ratifying the Canada–United States Free Trade Agreement in 1987 and its successor, NAFTA, seven years later.

Back then, Canada had little choice but to find a way to fix its relationship with the United States, the only game in town. Ottawa is in a different position now. Today, it enjoys a respectable platform of self-confidence, having weathered the financial crisis and ensuing recession far better than the United States. And unlike in the past, Canada can now look beyond its own neighborhood for economic opportunities -- especially to the rising economies of Asia.

Indeed, Canada has made a full-court press in the Asia-Pacific region. It is wooing countries such as China, India, Japan, and South Korea, which are eager to invest and trade in Canadian minerals, energy, and agricultural products. Harper has announced Canada’s intention to explore free-trade negotiations with China, and talks with Japan, Thailand, India, and South Korea are under way. As Harper put it during a visit to China in February, “We want to sell our energy to people who want to buy our energy.”

To be sure, Canadian companies will never abandon the U.S. market. Nevertheless, the U.S. recession and the rise of Asia have allowed Canada to diversify its economic relations. In 2010, only 68 percent of Canadian exports were destined for the United States, down from 85 percent in 2000. Canadians are accustomed to benign neglect from a neighbor preoccupied with more urgent global flashpoints, but since that neglect has grown so much as to be malign, they have begun to reappraise their relationship with the United States. As Canada develops closer ties with China and finds more receptive outlets for its exports, the United States may find itself with a less obliging partner to the north.

For the sake of brevity, I left off some of the other Canada-related mistakes Burney and Hampson mention, so be sure to read the whole article when you get the chance. It's quite the depressing read.

And it's even more proof that, as folks try to trace the origins of global protectionism's renaissance, there's really only one place to start.